UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D. C. 20549


                                   FORM 10-QSB


                   (X) QUARTERLY REPORT PURSUANT TO SECTION 13
                                OR 15 (d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                 For the quarterly period ended: March 31, 2005

          ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                        For the transition period from to

                        Commission File Number: 000-30771


                           INTERACTIVE MOTORSPORTS AND
                               ENTERTAINMENT CORP.
               (Exact name of registrant as specified in charter)


                                     Indiana
         (State or other jurisdiction of incorporation or organization)

                                   87-0678630
                           (I.R.S. Employer I.D. No.)

               5624 West 73rd Street, Indianapolis, Indiana 46278
                    (Address of principal executive offices)

                                 (317) 295-3500
              (Registrant's telephone number, including area code)


Indicate by checkmark whether the Issuer: (1) filed all reports required to be
filed by section 13 or 15 (d) of the Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. (1)
Yes [x] No [] (2) Yes [x] No []

As of May 20, 2005, there were 87,715,910 (par value $0.0001) common shares
issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE: Exhibit Index on page 25.

<PAGE>

<TABLE>
<CAPTION>
                    INDEX TO QUARTERLY REPORT ON FORM 10-QSB



                                                                                                              Page
<S>     <C>    <C>    <C>    <C>    <C>    <C>
Section                                                                                                     Number

NOTE ON FORWARD LOOKING INFORMATION............................................................................3
BASIS OF PRESENTATION..........................................................................................4

                                     PART I

Item 1.    Unaudited Financial Statements and Notes to Financial Statements
                  Consolidated Balance Sheets at March 31, 2005 and December 31, 2004..........................5
                Consolidated Statements of Operations for the Three Months Ended
                  March 31, 2005 and 2004 .....................................................................7
                Consolidated Statement of Shareholders' Equity
                  for the Three Months Ended March 31, 2005....................................................8
                Consolidated Statements of Cash Flows for the Three Months
                   Ended March 31, 2005 and 2004...............................................................10
                  Notes to Consolidated Financial Statements...................................................12
Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations...............15
Item 3.    Internal Controls and Procedures....................................................................24


                                     PART II

Item 1.    Legal Proceedings...................................................................................24
Item 2     Changes in Securities. .............................................................................24
Item 3     Defaults Upon Senior Securities.....................................................................24
Item 4.    Submission of Matters to a Vote of Security Holders.................................................24
Item 5.    Other Information...................................................................................24
Item 6.    Exhibits and Reports on Form 8-K....................................................................25


SIGNATURES.....................................................................................................26

EXHIBITS INDEX.................................................................................................31

EXHIBITS.......................................................................................................32


</TABLE>

<PAGE>

                       NOTE ON FORWARD-LOOKING INFORMATION

This Form 10-QSB and other statements issued or made from time to time by the
Company or its representatives contain statements, which may constitute
"forward-looking statements" within the meaning of the Securities Act of 1933
and the Securities Exchange Act of 1934, as amended by the Private Securities
Litigation Reform Act of 1995, 15 U.S.C.A Sections 77z-2 and 78u-5. Those
statements include statements regarding the intent, belief, or current
expectations of the Company and members of its management team as well as the
assumptions on which such statements are based. All statements, trend analyses,
and other information contained in this report relative to markets for the
Company's products and/or trends in the Company's operations or financial
results, as well as other statements which include words such as "anticipate,"
"could," "feel(s)," "believes," "plan," "estimate," "expect," "should,"
"intend," "will," and other similar expressions, constitute forward-looking
statements and are subject to known and unknown risks, uncertainties and other
factors that may cause actual results to be materially different from those
contemplated by the forward-looking statements. Such factors include, among
other things: (i) general economic conditions that may impact the disposable
income and spending habits of consumers; (ii) the availability of alternative
entertainment for consumers; (iii) the ability of the company to obtain
additional capital and/or debt financing; (iv) the ability of the company to
control costs and execute its business plan.

The reader is cautioned that any such forward-looking statements are not
guarantees of future performance and involve risks and uncertainties, and that
actual results may differ materially from those contemplated by such
forward-looking statements. Important factors currently known to management that
could cause actual results to differ materially from those in forward-looking
statements are set forth herein. The Company undertakes no obligation to update
or revise forward-looking statements to reflect changed assumptions, the
occurrence of unanticipated events or changes to future operating results over
time.


<PAGE>

                              BASIS OF PRESENTATION

Effective August 2, 2002, Pacific International Holding, Inc., a Utah
corporation ("PIH"), which was originally organized in 1986, changed its state
of domicile and name by merging with and into Interactive Motorsports and
Entertainment Corp. (the surviving entity), an Indiana corporation (the
"Company"), pursuant to an Agreement and Plan of Reorganization. Per the merger
agreement, each share of PIH common stock outstanding immediately prior to the
effective date of the merger was cancelled and converted into four shares of
Interactive Motorsports and Entertainment Corp. common stock. Although it had
been in a variety of businesses for over 15 years, at the time of the merger,
PIH had limited operations.

Subsequent to the merger and effective as of the same date, the Company acquired
pursuant to a Plan and Agreement of Exchange all of the issued and outstanding
shares of common stock and preferred stock of Perfect Line, Inc., an Indiana
corporation ("Perfect Line"), from the Perfect Line shareholders in exchange on
a "share-for-share" basis for shares of the Company's common stock and preferred
stock. As a result of the share exchange, the Perfect Line shareholders held as
of August 2, 2002 Company shares representing approximately eighty-two percent
(82%) of the Company's capital stock. Also effective as of August 2, 2002, the
members of the Board of Directors of Perfect Line were elected to replace the
members of the Company's Board of Directors and the executive officers of
Perfect Line became the executive officers of the Company.

As Perfect Line had revenues, operations, and business activity, for financial
reporting purposes, Perfect Line is considered the acquirer, and therefore the
predecessor, and the Company is considered the acquiree for accounting and
reporting purposes. Due to the fact that the merger is being treated as a
reverse acquisition, the equity of the Company has been recapitalized for
financial reporting purposes. The operations of Interactive Motorsports and
Entertainment Corp. have been included in consolidation from August 2, 2002
through March 31, 2005.

All information in this Form 10-QSB is presented from the perspective of
Interactive Motorsports and Entertainment Corp. and its subsidiary Perfect Line
and not from the perspective of PIH.



<PAGE>


                                     PART I

Item 1. Condensed Financial Statements

        INTERACTIVE MOTORSPORTS AND ENTERTAINMENT CORP. AND SUBSIDIARIES
                           Consolidated Balance Sheets

<TABLE>

                                     ASSETS
<CAPTION>


                                                                   March 31, 2005                        December 31, 2004
                                                             ---------------------             ----------------------------
                                                                 (unaudited)
Current Assets
<S>                                                      <C>                                  <C>
   Cash                                                  $                455,138             $                  1,334,673
   Accounts Receivable                                                    594,330                                  428,726
   Inventory                                                              470,690                                  259,931
   Prepaid Expenses                                                        33,511                                   35,490
                                                             ---------------------                 ------------------------
          Total Current Assets                                          1,553,669                                2,058,820
                                                             --------------------                  ------------------------
Property and Equipment
   Total Property and Equipment, Net                                      731,384                                  764,796
                                                             --------------------                 ------------------------
Other Assets
   Deposits                                                                43,401                                   42,001
   Other Intangible Assets, Net                                             5,416                                   11,599
                                                             ---------------------                 ------------------------
          Total Other Assets                                               48,817                                   53,600
                                                             ---------------------                 ------------------------

Total Assets                                             $              2,333,870             $                  2,877,216
                                                             =====================                 ========================



The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>

        INTERACTIVE MOTORSPORTS AND ENTERTAINMENT CORP. AND SUBSIDIARIES
                     Consolidated Balance Sheets (Continued)

<TABLE>

<CAPTION>
                                                     LIABILTIES AND SHAREHOLDERS' EQUITY (DEFICIT)

                                                                   March 31, 2005                           December 31, 2004
                                                             ---------------------                 ---------------------------
                                                                 (unaudited)
Current Liabilities
<S>                                                      <C>                                  <C>
   Accounts Payable                                      $                619,621             $                       418,815
   Accrued Payroll Expense                                                 26,019                                      67,385
   Accrued Sales Tax Payable                                               15,999                                      26,722
   Gift Cert. & Customer Deposits                                          40,556                                      42,888
   Deposits on Simulator Sales                                          1,328,468                                   1,573,978
   Accrued Liabilities                                                  1,110,471                                   1,158,929
   Deferred Revenue                                                        77,660                                      81,742
   Notes Payable - Related parties                                        196,000                                     186,537
   Notes payable                                                          644,000                                   1,061,651
                                                             ---------------------                 ---------------------------
          Total Current Liabilities                                     4,058,794                                   4,618,647
                                                             --------------------                  ---------------------------
          Total Liabilities                                             4,058,794                                   4,618,647
                                                             --------------------                  ---------------------------
Shareholders Equity
   Common Stock                                                             8,772                                       8,772
   Additional Paid in Capital                                           4,730,816                                   4,675,583
   Retained Earnings                                                   (6,464,512)                                 (6,425,786)
                                                             ---------------------                 ---------------------------
          Total Shareholders Equity                                    (1,724,924)                                 (1,741,431)
                                                             ---------------------                 ---------------------------

Total Liabilities & Equity                               $              2,333,870             $                     2,877,216
                                                             =====================                 ===========================



The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>

<PAGE>


        INTERACTIVE MOTORSPORTS AND ENTERTAINMENT CORP. AND SUBSIDIARIES
                      Consolidated Statements of Operations
                                   (unaudited)
<TABLE>


                                                         For the 3 months ending               For the 3 months ending
                                                             March 31, 2005                        March 31, 2004
                                                        --------------------------           ----------------------------

Revenues
<S>                                                 <C>                                   <C>
   Company Store Sales                              $                     648,134         $                    1,452,122
   Revenue Share Sales                                                    266,194                                106,599
   Simulator Leases                                                             0                                 50,625
   Sales of Simulator Systems                                             761,106                                      0
                                                        --------------------------           ----------------------------
          Total Revenues                                                1,675,434                              1,609,346
                                                        -------------------------            ----------------------------
Cost of Sales
   COGS - Merchandise                                                      57,623                                 81,366
   Group Sales Expenses                                                     3,661                                  3,542
   COGS - Sale of Simulators                                              346,548                                      0
                                                        -------------------------           ----------------------------
          Total Cost of Sales                                             407,832                                 84,907
                                                        --------------------------           ----------------------------

Gross Profit                                                            1,267,602                              1,524,439
                                                        --------------------------           ----------------------------

General & Admin Expenses
   Payroll Related Expenses                                               521,671                                876,813
   Occupancy Expenses                                                     301,959                                601,765
   Other Operating Expenses                                               396,374                                513,265
                                                        --------------------------           ----------------------------
          Total Operating Expenses                                      1,220,004                              1,991,842
                                                        -------------------------            ----------------------------
Operating Profit (Loss)                                                    47,598                              (467,404)


          Interest Expense                                                 86,324                                 52,973
                                                        --------------------------           ----------------------------


Net Income (Loss) before Income Tax Expense                              (38,726)                              (520,377)


          Income Tax Expense                           --------------------------            -----------------------------


Net Income (Loss)                                   $                    (38,726)        $                     (520,377)
                                                        ==========================           ============================

Net Income (Loss) per share                         $                     ($0.00)        $                       ($0.01)
                                                        ==========================           ============================

Weighted Average Shares Outstanding                                    87,715,910                             86,105,061
                                                        ==========================           ============================

The accompanying notes are an integral part of these consolidated financial statements.

</TABLE>

<PAGE>

<TABLE>

        INTERACTIVE MOTORSPORTS AND ENTERTAINMENT CORP. AND SUBSIDIARIES
            Consolidated Statement of Shareholders' Equity (Deficit)

<CAPTION>
                                                                                         Additional                           Total
                                       Preferred Stock           Common Stock            Paid-In          Retained     Shareholders'
                                      -----------------          ------------                                                 Equity
                              Shares        Amount             Shares       Amount       Capital           Deficit         (Deficit)
                              ------------------------------------------------------------------------------------------------------
Balance at
<S>        <C> <C>             <C>          <C>               <C>          <C>              <C>          <C>            <C>
  December 31, 2002            4,745,456    $        475      61,300,000   $    130         3,653,445    $ (2,909,074)  $    750,976

Common stock issued
  For extinguishment of
   debt                                -               -          20,000          2            (7,298)               -         7,300

Common stock issued
  for services                         -               -         120,000         12           (19,688)               -        19,700

Common stock issued
  for license fees                     -               -         150,000         15           (32,985)               -        33,000

Conversion of preferred
  stock to common stock      (2,472,728 )           (248)     12,724,183      1,272            (1,024)               -            -

Fair value of warrants
  granted                              -               -               -           -          (316,610)              -       316,610

Net loss for the year
  Ended December 31, 2003              -               -               -           -                 -       (3,525,581) (3,525,581)
                             ------------       ---------       --------        ----       ------------   -------------  -----------
Balance at
  December 31, 2003            2,272,728             227      74,314,183      7,431         4,029,002       (6,434,655)  (2,397,995)

Common stock issued for
  2003 Bridge Loan Interest            -               -         935,726         94            78,112                -       78,206

Common stock issued
  for services                         -               -         260,000         26            17,248                -       17,274

Conversion of preferred
  stock to common stock      (2,272,728)            (227)     11,363,640      1,136              (909)               -           -

Fair value of options and
   warrants granted                    -               -               -           -           436,595               -      436,595
                            ------------        --------        --------        ----      ------------   -------------   -----------

Subtotal                               -    $          -      86,873,549   $  8,687     $   4,560,048    $  (6,434,655) $(1,865,920)
                            ------------        --------      ----------   --------     -------------    -------------  ------------

The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>

<PAGE>
        INTERACTIVE MOTORSPORTS AND ENTERTAINMENT CORP. AND SUBSIDIARIES
            Consolidated Statement of Shareholders' Equity (Deficit)

<TABLE>



                                                                                         Additional                           Total
<CAPTION>
                                       Preferred Stock           Common Stock            Paid-In          Retained     Shareholders'
                                      -----------------          ------------                                                 Equity
                                 Shares        Amount          Shares       Amount       Capital           Deficit         (Deficit)
                        ------------------------------------------------------------------------------------------------------------
<S>                                         <C>               <C>          <C>          <C>              <C>           <C>
Balance Forward                        -    $          -      86,873,549   $  8,687     $   4,560,048    $ (6,434,655) $ (1,865,920)

Common stock issued
 for payment of prior year
 year accruals                         -               -         842,361         84           115,535               -       115,619

Net income for the year
  Ended December 31,
   2004                                -               -               -         -                 -             8,869        8,869
                        ----------------        --------        --------        ----    ------------    --------------  ------------
Balance at
  December 31, 2004                    -               -      87,715,910      8,772         4,675,583       (6,425,786)  (1,741,431)

Fair value of warrants
  issued                               -               -               -         -             55,233           -            55,233

Net income (loss) for the period
  Ended March 31, 2005                 -               -               -          -                 -          (38,726)     (38,726)
                         ---------------        --------        --------        ----    -------------   --------------- ------------
Balance at
  March 31, 2005                       -    $          -      87,715,910   $  8,772     $   4,730,816    $(6,464,512)   $(1,724,924)
                         ---------------    ------------    ------------   --------      ------------    ------------    -----------

The accompanying notes are an integral part of these consolidated financial statements.

</TABLE>


<PAGE>

<TABLE>

        INTERACTIVE MOTORSPORTS AND ENTERTAINMENT CORP. AND SUBSIDIARIES
                      Consolidated Statements of Cash Flows
                                   (Unaudited)

                                                                                    For the Three Months Ended
<CAPTION>
                                                                                              March 31
                                                                            --------------------------------------
                                                                                    2005                     2004
                                                                            --------------------     --------------

CASH FLOWS FROM OPERATING ACTIVITIES

<S>                                                                            <C>                 <C>
   Net loss                                                                    $       (38,726)    $      (520,377)
   Adjustments to reconcile net loss to net cash used
     by operating activities:
     Depreciation and amortization                                                      86,248              95,887
     Common stock issued for services                                                        -               2,300
     Common stock issued for interest                                                        -              10,000
     Warrants issued related to sales agreements                                        55,233                   -
     Amortization of notes payable discount                                             51,812              14,480
   Net changes in operating assets and liabilities:
     (Increase) decrease in trade accounts and other receivable                       (165,604)              7,881
     (Increase) decrease in inventory                                                 (210,759)           (16,448)
     (Increase) decrease in prepaid expenses and other assets                            1,979               (651)
     (Increase) decrease in deposits                                                    (1,400)            (2,036)
     Increase (decrease) in accounts payable                                           200,806              29,564
     Increase (decrease) in accrued payroll and payroll taxes                          (41,366)             43,298
     Increase (decrease) in sales tax payable                                          (10,723)            (9,621)
     Increase (decrease) in gift certificates and customer deposits                     (2,331)            (6,152)
     Increase (decrease) in accrued expenses                                            60,517             101,131
     Increase (decrease) in deposits on simulator sales                               (245,510)            273,853
                                                                            ------------------    ----------------

       Net Cash Provided (Used) by Operations                                         (259,824)             23,109
                                                                            ------------------ -------------------

CASH FLOWS FROM INVESTING ACTIVITIES

   Purchase of property and equipment                                                 (428,925)           (77,708)
   Sale of property and equipment                                                      382,270                  -
                                                                            -------------------  ----------------
       Net Cash Used by Investing Activities                                           (46,655)           (77,708)
                                                                            ------------------ -------------------

CASH FLOWS FROM FINANCING ACTIVITIES

   Loans from and (repayments to) related parties                                            -            (45,000)
   Proceeds from issuance (payment) of notes payable                                 (573,056)             185,000
                                                                               ------------------  ------------------

       Net Cash Provided (used) by Financing Activities                              (573,056)             140,000
                                                                            ------------------  ------------------

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                      (879,535)             85,401

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                       1,334,673             249,005
                                                                            ------------------  ------------------

CASH AND CASH EQUIVALENTS, END OF PERIOD                                    $          455,138  $          334,406
                                                                            ==================  ==================


The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>

<PAGE>

        INTERACTIVE MOTORSPORTS AND ENTERTAINMENT CORP. AND SUBSIDIARIES
                Consolidated Statements of Cash Flows (Continued)
                                   (Unaudited)

<TABLE>
<CAPTION>

                                                                                  For the Three Months Ended
                                                                                        March 31,
                                                                               2005                     2004
                                                                            ---------------      -----------------


SUPPLEMENTAL CASH FLOW DISCLOSURES:

<S>                                                                         <C>                 <C>
   Cash paid for interest                                                   $           23,882  $           87,332
   Cash paid for income taxes                                               $                -  $                -

SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS:

   Common stock issued for accrued liabilities                              $                -  $          115,620
   Accrued interest converted to notes payable                              $                -  $              250
   Discount on convertible notes                                            $           51,812  $          276,122
   Common stock issued for capitalized loan fees                            $                -  $           15,000
   Warrants issued related to sales agreements                              $           55,233  $                -


The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>

<PAGE>

        INTERACTIVE MOTORSPORTS AND ENTERTAINMENT CORP. AND SUBSIDIARIES
                 Notes to the Consolidated Financial Statements
                      March 31, 2005 and December 31, 2004


NOTE 1 -      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a.       Unaudited Interim Financial Information

              The accompanying unaudited condensed consolidated balance sheets
              of Interactive Motorsports and Entertainment Corp. (the "Company")
              at March 31, 2005 and December 31, 2004 and the unaudited
              consolidated statements of operations and statements of cash flows
              for the three months ended March 31, 2005 and March 31, 2004 have
              been prepared by the Company's management and do not include all
              the information and notes to the financial statements necessary
              for a complete presentation of the financial position, results of
              operations, and cash flows in conformity with generally accepted
              accounting principles. In the opinion of management, all
              adjustments necessary for a fair presentation of the results of
              operations and financial position have been included and all such
              adjustments are of a normal recurring nature. Although management
              believes the disclosures are adequate to make the information
              presented not misleading, it is suggested that these condensed
              consolidated financial statements be read in conjunction with the
              audited financial statements and the notes thereto included in the
              Company's latest annual financial statements included in the
              Company's annual report on Form 10-KSB. The results of operations
              for the three months ended March 31, 2005 are not necessarily
              indicative of the results that may be expected for the full year
              ending December 31, 2005 or any future period.

b.       Use of Estimates

              The preparation of financial statements in conformity with
              accounting principles generally accepted in the United States of
              America requires management to make estimates and assumptions that
              affect the reported amounts of assets and liabilities and the
              disclosure of contingent assets and liabilities at the date of the
              financial statements and the reported amounts of revenues and
              expenses during the reporting period. Actual results could differ
              from those estimates.

c.      Change in accounting method for the sale of Simulators

              During the quarter the Company changed the method it uses to
              record the sale of simulators from the completed contract method
              to the percentage of completion method. The percentage of
              completion for any given sales contract is determined by the ratio
              of costs incurred to date to the total estimated cost for each
              site build. Costs incurred consist of purchased components,
              outside services, and outside contract labor cost. The Company
              believes that the percentage of completion method more accurately
              represents the simulator sales activities of the Company.

NOTE 2 -      DEBT AND CREDIT ARRANGEMENTS

              Pursuant to the Note and Option Purchase Agreement and Security
              Agreement dated February 2, 2004 ("Agreement"), the Company issued
              notes bearing an interest rate of 9.6% payable in the total amount
              of $750,000. These notes were issued between February 2, 2004 and
              June 6, 2004. Each note came with an option to purchase common
              shares of the Company equal to the amount of notes purchased
              divided by the fair market value of the Company's stock on the
              date of issuance. The options expired on March 2, 2005. The notes
              became due on February 2, 2005, and $260,000 of the notes were
              paid in full at that time. The noteholder of an additional
<PAGE>
        INTERACTIVE MOTORSPORTS AND ENTERTAINMENT CORP. AND SUBSIDIARIES
                 Notes to the Consolidated Financial Statements
                      March 31, 2005 and December 31, 2004

              $344,000 of the notes has elected to receive $16,000 in cash and
              exercise most of the options granted with the note purchase for
              full payment of the notes per the terms of the Agreement. This
              transaction occurred in the quarter subsequent to March 31, 2005,
              and thus is not reflected in the financial statements as of March
              31, 2005. The noteholder of the final note in the amount of
              $146,000 has agreed to extend the maturity date of the note to
              August 2, 2005, with the accompanying option to expire on
              September 1, 2005. Other than the options related to the $344,000
              note mentioned above, all options related to the Agreement expired
              unexercised on March 2, 2005.

              The value of the options was amortized to interest expense over
              their original life which expired March 1, 2005. Amortization of
              option discount of $51,812 was included in interest expense for
              the three months ended March 31, 2005.

NOTE 3 -       SIMULATOR SALE AGREEMENTS

              On December 31, 2004, the Company entered into an Asset Purchase
              Agreement pursuant to which it sold thirty-four (34) of its
              existing race car simulators to Race Car Simulation Corporation
              ("RCSC"), a wholly owned subsidiary of Dolphin Direct Equity
              Partners, LP ("Dolphin") for an aggregate purchase price of
              $1,535,000. The Agreement also granted RCSC an option to purchase
              an additional ten (10) new race car simulators for an aggregate
              purchase price of $1,320,000. On March 31, 2005, the Company and
              RCSC entered into a Second Asset Purchase Agreement whereby the
              Company received the proceeds from the sale of four of the ten
              additional race car simulators for an aggregate purchase price of
              $720,000. The Second Agreement also called for the Company to
              issue 1,080,000 warrants as part of the transaction. The sale of
              the new simulators occurred prior to the completion of the
              installation process, and was recorded using the percentage of
              completion method. Additionally, the issuance of the warrants was
              recorded in the current period. The portion of the sale proceeds
              that could not be recorded on the Income Statement was recorded on
              the Balance Sheet as an increase to Deposits on Simulator Sales,
              and will be recorded on the Income Statement in the second
              quarter, 2005 now that the installation is complete.

              On December 1, 2004, the Company entered into an agreement with
              I-Vision Technology for the purchase of two new simulators and
              related equipment. By March 31, 2005, the Company had been paid in
              full, and the simulators were en route to the installation site.
              The sale of the new simulators occurred prior to the completion of
              the installation process, and was recorded using the percentage of
              completion method. The portion of the sale proceeds that could not
              be recorded on the Income Statement was recorded on the Balance
              Sheet as an increase to Deposits on Simulator Sales, and will be
              recorded on the Income Statement in the second quarter, 2005 now
              that the installation is complete.

              During the period ending March 31, 2005, the Company recorded the
              sale and completed the installation of the simulators located at
              Ft. Gordon, GA., and was paid in full per the terms of the sales
              agreement.

<PAGE>
        INTERACTIVE MOTORSPORTS AND ENTERTAINMENT CORP. AND SUBSIDIARIES
                 Notes to the Consolidated Financial Statements
                      March 31, 2005 and December 31, 2004

NOTE 4 -       SUBSEQUENT EVENTS

               On April 15, 2005, the Company and RCSC entered into a Third
               Asset Purchase Agreement whereby the Company received the
               proceeds from the sale of six of the ten additional race car
               simulators referenced above for an aggregate purchase price of
               $600,000. The Third Agreement also called for the Company to
               issue 900,000 warrants as part of the transaction.

               During the period ending March 31, 2005, management was
               approached by the owner of the mall where the Company's Nyack, NY
               store was located. After a period of negotiation, the Company
               accepted the mall owner's offer to accelerate the termination
               date of the lease on the store's space. The store closed on March
               27, 2005, but expenses associated with the store and its closure
               was incurred through April, 2005.




<PAGE>


Item 2. Management's Discussion and Analysis of Financial Condition and Results
        of Operations

The following discussion and analysis provides information that we believe is
relevant to an assessment and understanding of the consolidated results of
operations and financial condition of the Company. The terms "Company", "we",
"our" or "us" are used in this discussion to refer to Interactive Motorsports
and Entertainment Corp. along with Interactive Motorsports and Entertainment
Corp.'s wholly owned subsidiary, Perfect Line, Inc., on a consolidated basis,
except where the context clearly indicates otherwise. The discussion and
information that follows concerns the Registrant as it exists today, as of this
filing, including the predecessor of the Company's operations, Perfect Line,
LLC. This discussion and analysis does not relate to the operations of Pacific
International Holding, Inc. which had limited operations prior to the merger
with the Company on August 2, 2002.

Overview

Interactive Motorsports and Entertainment Corp. ("IMTS" or the "Company"), an
Indiana corporation, through its wholly owned subsidiary, Perfect Line, Inc., is
a world leader in race simulation that owns and operates racing centers, leases
or revenue shares with third party operators and sells race car simulators.
NASCAR Silicon Motor Speedway ("NSMS") customers experience driving in a NASCAR
race car that simulates the motion, sights and sounds of an actual NASCAR event.
Located in high profile, high traffic locations, the Company's racing centers
range from 2 to 12 race car simulators per location and many sites offer what
the Company believes to be the best selling NASCAR driver merchandise available
to the market.

In July of 2003, management revised the Company's business model, changing the
focus from Company owned and operated mall-based racing centers to revenue share
racing centers (mall merchandise retailers, family entertainment centers,
amusement parks, casinos, auto malls, etc.) and mobile lease programs such as
the Nextel Experience. In February, 2004, Nextel debuted The Nextel Experience,
a mobile fan interactive experience that features six of the Company's race
simulators. Nextel has subsequently taken delivery of three additional
2-simulator mobile experiences that they use for promotional events that
features the Company's simulators.

The change in the business model, and particularly the sale of simulators as
outlined in Note 3 of the financial statements above, has allowed the Company to
generate three consecutive quarters of operating profit and positive Earnings
Before Interest, Taxes, Depreciation and Amortization ("EBITDA"), its first
quarterly net profit in the fourth quarter of 2004 and its first annual profit
in the year ending December 31, 2004.

Since inception on May 31, 2001 and through March 31, 2005, the Company has
accumulated aggregate losses totaling $(6,464,512), which includes the net loss
of $(38,726) for the three months ending March 31, 2005, the net profit of
$8,869 for the twelve months ended December 31, 2004, the net loss of
$(3,525,581) for the twelve months ended December 31, 2003, the net loss of
$(2,189,220) for the twelve months ended December 31, 2002 and the net loss of
$(719,854) for the period from inception to December 31, 2001.

The Company has funded its retained losses through the initial investment of
$650,000 in May 2001, $400,000 of capital contributed in February 2002,
approximately $2.6 million received in August 2002 from the sale of Preferred
Stock, $700,000 borrowed in March 2003, $604,000 in net proceeds borrowed
between February 2004 and June 2004, $1.897 million received in the form of
deposits for the placement of race car simulators in revenue share locations, or
for the future purchase by third parties of race car simulators, and $1,056,692
by delaying payments to its vendors. See further discussion under "Liquidity and
Capital Resources" and "Risk Factors" below.
<PAGE>

During the three months ended March 31, 2005, the Company had total revenues of
$1,675,434 compared to $1,609,346 for the three months ended March 31, 2004. The
4.11 % increase in revenue is due primarily to the implementation of the
Company's revised business model during 2004, including the sale of simulators..
Most of the Company store locations at March 31, 2004 have either been converted
to Checker Flag Lightning, Inc. revenue share locations, or have been relocated
or closed under arrangements with the respective landlords that management
believes are favorable to the Company. This has resulted in the Company
recognizing just a portion of the revenue generated by the location as revenue
share income, with little related expense, rather than recognizing all the
revenue generated at a location, but also recognizing the payroll, rent and
operating expenses associated with the location as well. The resultant reduction
in revenue from store sites was partially offset by the 150% increase in revenue
share income, and the recognition of the sale of race car simulators to Race Car
Simulation Corp., I-Vision Technology, and to Ft. Gordon, GA.

The Company has established four primary sources of revenues: (i) company owned
and operated racing centers; (ii) lease/revenue share arrangements of two types
- (a) new facility operators for new locations, and (b) new facility operators
to assume the Company's operations under presently existing Company locations;
(iii) new operators for mobile lease arrangements such as with the Nextel
experience; and (iv) simulator equipment sales. A brief description of each of
those is listed below.

<TABLE>

Locations

<CAPTION>
Company Owned (24 Simulators):
              Location                     Market              Sq. Ft.          Simulators
       --------------------         -------------------     -----------         ----------
<C>                                                             <C>               <C>
1)       Mall of America            Minneapolis, MN             5,899             12 race cars
2)       Universal CityWalk         Los Angeles, CA             5,000             12 race cars


Revenue Share (128 Simulators):

             Location                      Market              Sq. Ft.          Simulators
     ----------------------         -------------------     -----------         ----------
1)       Opry Mills                 Nashville, TN               6,007            10 race cars
2)       Gurnee Mills               Chicago, IL                 6,111             6 race cars
3)       Concord Mills              Charlotte, NC               7,865            12 race cars
4)       Katy Mills                 Houston, TX                 6,172             8 race cars
5)       Mall of Georgia            Atlanta, GA                 5,895             8 race cars
6)       Riverchase Galleria        Birmingham, AL              6,188             8 race cars
7)       RiverTown Crossing         Grand Rapids, MI            6,100             8 race cars
8)       Jordan Creek Town Ctr      Des Moines, IA              4,000             8 race cars
9)       NASCAR SpeedPark           Sevierville, TN             1,584             6 race cars #
10)      NASCAR SpeedPark           St. Louis, MO               1,496             6 race cars #
11)      NASCAR SpeedPark           Toronto, Canada             1,500             6 race cars #
12)      NASCAR Speedpark  (a)      Myrtle Beach, SC            1,600             6 race cars #*
13)      Gate A Sports              Cleveland, OH               2,470             5 race cars
14)      Playcenter (b)             Sao Paulo, Brazil           1,000             4 race cars*
15)      Burdick Driver's Village   Syracuse, NY                3,472             8 race cars #
16)      Big River Entertainment(b) Memphis, TN                 5,000            12 race cars*
17)      Bass Pro Shop              Harrisburg, PA                500             2 race cars
18)      University Mall (a)        Burlington, VT              3,700             5 race cars*

a. Scheduled to open Q2
b. Scheduled to open TBD
</TABLE>
<PAGE>

<TABLE>

<CAPTION>
Mobile Units (14 Simulators):

<C>                                     <C>  <C>                                  <C>
1) Nextel Mobile Experience             2004-06 NASCAR Nextel Cup series events   6 race cars #
2) Perfect Line/NTI Experience          Joint Venture Mobile Experience           2 race cars
3) Nextel Mini Experiences              Nextel regional marketing                 6 race cars #
</TABLE>

Sales of Simulators (20 Simulators):

        Buyer                Market                     Simulators
       --------              ------                      ----------
1)  Roltex              Moscow, Russian Federation      8 race cars *
2)  Tonne Mgmt          Wisconsin Dells, WI             4 race cars *
3)   Ft. Gordon         Ft. Gordon, GA                  2 race cars
4)   I-Vision Tech.     Abu Dhabi, UAE                  4 race cars
5)   I-Vision Tech.     Abu Dhabi, UAE                  2 race cars


# Denotes asset sold to Race Car Simulation Corporation
* Denotes that simulators are not yet installed



NSMS racing centers were originally owned and developed by Silicon
Entertainment, Inc. ("SEI"). SEI opened its first site in August 1997 at the
Mall of America in Bloomington, Minnesota, the largest mall in the United
States. SEI raised large sums of initial capital, of which, according to SEI
internal documents, approximately $6.5 million was utilized to create its
proprietary software technology and approximately $25 million was utilized to
produce approximately 170 simulators and complete the build-out of 15 stores in
high traffic malls. SEI was unable to secure additional long term financing to
support its capital expansion, and was liquidated through Chapter 7 bankruptcy
in April 2001. Perfect Line's assets were primarily acquired from creditors of
SEI. As a result of SEI's bankruptcy, Perfect Line was able to purchase the
assets of SEI at a price substantially below SEI's cost.

Perfect Line, LLC, a predecessor to Perfect Line, Inc., re-opened 12 of the
racing centers, which utilized 136 of the simulators, between July 2001 and
August 2002. The Company then warehoused 32 simulators for future deployment and
2 simulators are used for research and development purposes at the Company's
technology center in Santa Clara, California. The proprietary technology
includes two U.S. Patents, which combine to create what management believes to
be one of the world's most realistic simulations of the sights, sounds and
motions experienced by driving in an actual NASCAR race. The proprietary
motion-based platform that the race car simulator is mounted on is among the
other assets that were acquired and licensed as part of the transaction.

In August 2002, Perfect Line became a wholly owned subsidiary of IMTS, through
an exchange of shares that resulted in Perfect Line shareholders owning
approximately 82% of IMTS equity. Simultaneous with this event, approximately
$2.6 million in private equity financing was made available to Perfect Line.
Approximately one-half of the funding was used to retire the Company's bank note
and the balance was used for working capital.

In July of 2003, management revised the Company's business model, changing the
focus from Company owned and operated mall-based racing centers to revenue share
racing centers (mall merchandise retailers, family entertainment centers,
amusement parks, casinos, auto malls, etc.) and mobile lease programs such as
the Nextel Experience and simulator sales. Without the burden of occupancy costs
and labor costs, management believes the current business model has proved
successful as indicated by the Company's string of three straight quarters of
operating profits and positive EBITDA, the first quarterly net profit for the
quarter ended December 31, 2004, as well as its first net profit for the year
ending December 31, 2004. On December 31, 2004, the Company entered into an
Asset Purchase Agreement pursuant to which it sold thirty-four (34) of its
<PAGE>

existing race car simulators to Race Car Simulation Corporation ("RCS"), a
wholly owned subsidiary of Dolphin Direct Equity Partners, LP ("Dolphin") for an
aggregate purchase price of $1,536,600. The Agreement also granted RCS an option
to purchase an additional ten (10) new race car simulators for an aggregate
purchase price of $1,320,000. On March 31, 2005, the Company and RCSC entered
into a Second Asset Purchase Agreement whereby the Company received the proceeds
from the sale of four of the ten additional race car simulators for an aggregate
purchase price of $720,000. On April 15, 2005, the Company and RCSC entered into
a Third Asset Purchase Agreement whereby the Company received the proceeds from
the sale of six of the ten additional race car simulators referenced above for
an aggregate purchase price of $600,000. The March 31, 2005 and April 15, 2005
simulator sales transactions completed the exercise of RCS's option stemming
from the December 31, 2004 simulator sale.

The Company's Current Operations, Recent Developments and Plan for the Future

The Company's primary focus is to leverage the Company's ownership of its
internationally unique, proprietary race car simulation technology and create
the largest network of officially-licensed, NASCAR-branded entertainment centers
in the world. The Company believes that this can be done profitably through a
combination of owned and operated racing centers, third party revenue share
locations (family entertainment centers, amusement parks, casinos, auto malls,
etc.), mobile unit leases and the domestic and international sales of the race
simulator product.

NASCAR racing is currently the #1 spectator sport in America. The Company has an
exclusive license agreement with NASCAR for location-based entertainment, which
includes the right to use the NASCAR name within the Silicon Motor Speedway
logo, on racing center signage, within collateral sales materials, on the NSMS
web site, and within the NSMS racing simulator software. The Company has also
secured licenses with many popular racetracks in the United States, and the cars
driven by many of the race fans' favorite Nextel Cup teams and drivers, ranging
from established stars such as Dale Earnhardt, Jr., Tony Stewart and Mark
Martin, to rising stars like Matt Kenseth and Kurt Busch. These licensing
agreements and the use of NASCAR related identities and marks provide immediate
name recognition, credibility, and authenticity to NSMS.

The Company has integrated these license agreements with sophisticated
proprietary racing simulator technology to create a network of NASCAR-themed,
family-oriented, racing entertainment and retail merchandise centers. Many
racing centers are in some of America's premier shopping malls, giving us access
to over 160 million annual site visits from potential customers.

Simulator races take place on famous NASCAR Nextel Cup racetracks such as
Daytona International Speedway, Indianapolis Motor Speedway, Lowe's (Charlotte)
Motor Speedway, Atlanta Motor Speedway, Bristol Motor Speedway, and Richmond
International Raceway.

NSMS owned Racing Centers, as well as many of its revenue share Racing Centers,
are operated as combined racing entertainment and retail merchandise stores. In
addition to providing customers with the opportunity to drive Nextel Cup
race cars, NSMS Racing Centers also feature a large selection of
officially-licensed NASCAR merchandise. Research indicates that NASCAR fans buy
more merchandise than fans from almost any other sport and they are also the
most brand-loyal. These characteristics helped boost worldwide NASCAR-branded
retail sales from approximately $82 million in 1990 to $2.1 billion in 2004. The
Company's NSMS racing centers are the largest network of officially licensed,
NASCAR-branded interactive entertainment stores in the world, and offer its
customers the most popular NASCAR merchandise available. Although the Company's
owned locations provide its only direct means to generate revenues from
merchandise sales, the Company's experience has been that increases in
merchandise sales have a spillover effect on the level of simulator revenue each
site generates. The Company does not receive any payments from the revenue share
<PAGE>

sites for merchandise sales. With these factors in place, the Company believes
it is well-positioned to capitalize on this billion-dollar market.

Tony Stewart, 2002 NASCAR Nextel Cup Champion, has been the spokesman and
technical advisor for NASCAR Silicon Motor Speedway. He has been featured in
promotions, advertising and point-of-sale material and also has made appearances
at NSMS racing center locations throughout the country.

The Company first tested the revenue share business model with the Burroughs and
Chapin Company of Myrtle Beach, South Carolina, by installing 6 simulators at
their Smokey Mountain NASCAR SpeedPark in April of 2003, and 5 simulators at
their Myrtle Beach Pavilion Amusement Park's Ocean Front Arcade in May of 2003.
The results of these two revenue share racing centers inspired management to
revise the Company's business model beginning in July of 2003, changing the
focus from Company owned and operated racing centers to revenue share racing
centers located within malls, family entertainment centers, amusement parks,
casinos, auto malls, etc. Revenue share locations will provide IMTS the
opportunity to install simulators in existing or planned entertainment venues
and share proportionately in the sales generated with owner-operators. The
Company provides the simulators at cost (expected to be financed through a third
party leasing firm, although no agreements have been reached) and the host
organization (owner-operator) provides the space, required site build-out, and
day-to-day operations staffing.

The Company and Checker Flag Lightning of Grandville, Michigan, tested the
conversion of one of the Company's mall racing centers to a Checker Flag
Lightning retail merchandise and entertainment center beginning in November of
2003. The lease at the racing center within RiverTown Crossing in Grandville,
Michigan was assigned to Checker Flag Lightning and the store was remodeled by
reducing the number of simulators to 8 from 10, and building out the retail
merchandise space to fill nearly half of the 6100 square feet with NASCAR
merchandise. This model led to an agreement with Checker Flag Lightning in March
of 2004 to assign six of the Company's mall leases with the intent to convert
each of them to the new mall model. In addition, Checker Flag Lightning has
opened a 3,500 square foot retail merchandise and entertainment center featuring
8 of the Company's simulators in the new Jordan Creek Town Center in West Des
Moines, Iowa, and a 4000 square foot site featuring 6 simulators at Gurnee
Mills, just north of Chicago, Illinois.

The Company recently established a new revenue stream through mobile leases that
management believes will be beneficial to the Company in the future. At the 2004
Daytona 500, Nextel debuted The Nextel Experience, a mobile fan interactive
experience that features six of the Company's race simulators. The Nextel
Experience has had and will have a prominent location at each of the NASCAR
Nextel Cup events for at least through the 2006 season. In 2004, Nextel also
leased a Mini-Experience housed in a 53 foot trailer. The Mini Experience
features two of the Company's racing simulators in a self contained package that
Nextel uses at various promotional activities. The Mini Experience has been such
a success that Nextel ordered and is now leasing two additional trailers that
they will use for promotional events around the country, each featuring two of
the Company's simulators.

The Company has made technological improvements to the simulation, resulting in
an enhanced racing experience. In addition, two popular racetracks, Bristol and
Indianapolis, were introduced to the simulation experience late in 2002 and
early in 2003. Other software improvements were implemented, including on-line
programs such as MySpeedway. MySpeedway is a feature on IMTS's website
(www.smsonline.com) that allows customers to find their recent lap times, and
analyze their results to improve their performance by comparing their times to
those of other racers throughout the country. Car parameters were introduced in
August 2003 allowing racers to set up their cars to their personal preferences.
Adjustable parameters include traction control, anti-lock brakes, spoiler angle,
steering ratio, front anti-roll bar, engine, transmission gearing, and rear end
ratio.
<PAGE>

Technological improvements are currently under development. These include
upgrading and enhancing the game graphics, upgrading the underlying operating
system in order to accommodate future developments, and significant revenue
enhancing game features that target the Company's core customers. Other projects
include a smaller version of our patented motion platform that will allow more
customer throughput, a 3D version of our racing experience and a concept called
Wheel to Real where we recreate actual NASCAR races in graphic form using data
from the race cars for replay experiences and interactive features.

In order to meet the ongoing demand for the Company's simulators, the Company
has submitted purchase orders for 50 new race car simulator bodies and motion
base platforms with Elan Motorsports Technologies, and has taken delivery of 19
simulators as of March 31, 2005. The manufacturing will be funded by a
combination of advance deposits due from customers and the financing that the
Company anticipates generating due to the Company's recent financial
improvements.

Overview of Financial Position and Results of Operations

During the three months ended March 31, 2005, the Company had total revenues of
$1,675,434 compared to $1,609,346 for the three months ended March 31, 2004, a
4.11% increase. Revenue from company store sales decreased by 55.37% as the
company executed its revised business plan focusing on revenue share locations
versus company owned locations. On a per store basis, the Company generated an
average of $161,347 per store on the nine company store locations in the first
three months of 2004, compared with $216,045 per store on the three store
locations operating in the comparable period in 2005. Offsetting the decline in
total company store sales in the first three months ending March 31, 2005 was a
150% increase in revenue share sales, and a $761,106 swing in sales of
simulators as compared to the first three months ending March 31, 2004. The
Company recorded all or a portion of three sales transactions for eight
simulators, and added a five simulator revenue share location in Mentor, OH
during the three months ending March 31, 2005.

The Company continued its string of quarterly operating profits, posting
significantly improved year over year financial results during the three months
ending March 31, 2005. Although revenues increased by $66,088 for the three
months ending March 31, 2005 as compared to the three months ending March 31,
2004, cost of good sold for the comparable periods increased by $322,925. This
was the result of the change in the mix of the Company's revenue sources, with
revenue from company stores and revenue share locations having a higher gross
margin that revenue derived from simulator sales. Consequently, gross profit for
the three months ending March 31, 2005 fell by 16.85% as compared to the same
period in 2004.

Offsetting the decrease in gross profit was the decline in operating expenses by
38.75%, resulting in a $47,598 operating profit for the quarter ending March 31,
2005. This operating profit represents a $515,002 swing from the ($467,404)
operating loss for the quarter ending March 31, 2004 The decline in operating
expenses is a direct result of the implementation of the company's revised
business model, and is largely due to the closure, relocation, or conversion to
a revenue share site of seven former company store locations. Payroll expenses
declined 40.5% and occupancy expenses declined 49.8% when comparing the first
quarter 2005 to the first quarter 2004. Interest expense for the three months
ending March 31, 2005 was $86,324 as compared to $52,973 for the comparable
quarter in 2004. The net loss for the quarter ending March 31, 2005 of ($38,726)
was $481,651 less than the ($520,377) loss for the same quarter one year ago.
The three month period ending March 31, 2005 marked the third consecutive
quarter that the company was able to generate a positive operating profit and
positive EBITDA. EBITDA for the three months ending March 31, 2005 was $133,846
as compared to a negative ($371,517) for the same period ending March 31, 2004.
Since inception on May 31, 2001 and through March 31, 2005, the Company has
accumulated aggregate losses totaling ($6,464,512).
<PAGE>

The Company's cash flow from operations deteriorated during the quarter ending
March 31, 2005 as compared to the comparable period in 2004. Cash generated from
operations for the three months ending March 31, 2005 declined by $282,933 to
($259,824) as compared to the same three month period in 2004. The cash
requirements from the increases in accounts receivable and inventory were
partially offset by the increase in accounts payable. Additionally, deposits on
simulator sales decreased due to the recording of three simulator sales
transactions in the quarter. Cash flow from all sources (operations, investing
activities and financing activities) was insufficient to fund the company during
the three months ending March 31, 2005, and resulted in a $879,535 reduction in
the Company's cash position. This compares with $85,401 in cash generated for
all sources for the period ending March 31, 2004. Of note is that $210,759 of
cash in the quarter ending March 31, 2005 was used to purchase both merchandise
and simulator inventory, which will help the Company meet market demand and
generate earnings in future quarters. Likewise, the company paid down its debt
by $573,056, which in turn should reduce interest expense and increase net
profits in future quarters as well, although there can be no assurance.

The Company has funded its retained losses through the initial investment of
$650,000 in May 2001, $400,000 of capital contributed in February 2002,
approximately $2.6 million received in August 2002 from the sale of Preferred
Stock, the $700,000 borrowed March 2003, $766,000 received from deposits for the
purchase of race car simulators by third parties, $604,000 received in the first
six months of 2004 from the net proceeds of Notes, and $1,057,000 by delaying
payment to its vendors. The Company is in the process of seeking additional debt
financing to fund current operating deficits and the Company's growth plan. See
further discussion under the "Liquidity and Capital Resources" section below.

Review of Consolidated Financial Position

Cash and Cash Equivalents: The Company had $455,138 in cash and cash equivalents
as of March 31, 2005 compared with $1,334,673 at December 31, 2004, a decrease
of $879,535. This decrease in the company's position of cash during the first
three months of 2005 was due principally to the purchase of both merchandise and
simulator inventory, which will help the Company meet market demand and generate
earnings in future quarters. At March 31, 2005, the Company had taken delivery
of 19 new simulators. Additionally, the company paid down its debt by over half
a million dollars, and completed the full or partial sale of three simulator
sales transactions, resulting in the reduction of deposits on simulator sales of
$245,510. See further discussion under the "Liquidity and Capital Resources"
section below.

Trade Accounts Receivable: At the three months ending March 31, 2005, Checker
Flag Lightning was behind on payments in the amount of $502,557, and the Company
has been negotiating with CFL to resolve this issue amicably. At the time of
this filing, there have been numerous discussions with Checker Flag and with the
owner of the malls where most of the Checker Flag Lightning stores are located,
and management believes a settlement will be reached in the near future to the
benefit of all parties, although there can be no assurance.

Inventory: At March 31, 2005, inventory increased by $210,759 from December 31,
2004 levels due primarily to the delivery of new simulators from Elan
Motorsports for deployment to new sites, coupled with the arrival of spring
merchandise in the company's stores. Simulators in inventory increased by
$172,562 from December 31, 2004 levels to $425,194 at March 31, 2005. Likewise,
merchandise inventory increased by $38,198 from December 31, 2004 levels during
the period ending March 31, 2005 as the company moved to restore the merchandise
stock in its stores after the Christmas season.

Notes Payable: Between February and June, 2004 the Company sold secured notes
which became due on February 2, 2005. Per the terms of the agreement with the
noteholders, $260,000 of the notes were paid in full at that time. The
<PAGE>

noteholder of an additional $344,000 of the notes has elected to receive $16,000
in cash and exercise most of the options granted with the note purchase for full
payment of the notes per the terms of the Agreement. This transaction occurred
in the quarter subsequent to March 31, 2005, and thus is not reflected in the
financial statements as of March 31, 2005. The noteholder of the final note in
the amount of $146,000 has agreed to extend the maturity date of the note to
August 2, 2005, with the accompanying option to expire on September 1, 2005.

In March 2003, the company issued notes totaling $700,000, $500,000 of which was
sold to Ropart Asset Management. During the three months ending March 31, 2005,
the Company reduced its indebtedness to Ropart Asset Management by $200,000, and
the maturity of the note was extended to September 30, 2005.

Deposits on Simulator Sales: During the three month period ending March 31,
2005, the Company recorded all or a portion of three simulator sales
transactions based on the percentage of completion method of accounting, and
added a five simulator revenue share site. This activity resulted in the
reduction of deposits on simulator sales of $245,510 to $1,328,468 as compared
to the balance at December 31, 2004.

Other Liabilities: Accounts payable, accrued payroll and payroll taxes, sales
taxes payable, unearned revenue, and other accrued expenses fluctuate with the
volume of business, timing of payments, and the day of the week on which the
period ends.

Review of Consolidated Results of Operations

During the three months ended March 31, 2005, the Company had total revenues of
$1,675,434 compared to $1,609,346 for the three months ended March 31, 2004.
Revenue from company store sales decreased by 55.37% as the company executed its
revised business plan focusing on revenue share sites versus company owned
locations. On a per store basis, the Company generated an average of $161,347
per store on the nine company store locations in the first three months of 2004,
compared with $216,045 per store on the three store locations operating in the
comparable period in 2005. Offsetting the decline in total company store sales
in the first three months ending March 31, 2005 was a 150% increase in revenue
share sales, and a $761,106 swing in sales of simulators as compared to the
first three months ending March 31, 2004 The Company recorded three sales
transactions for eight simulators, and added a five simulator revenue share
location in Mentor, OH. during the three months ending March 31, 2005.

The Company continued its string of quarterly operating profits, posting
significantly improved year over year financial results during the three months
ending March 31, 2005. Although sales increased by 4.11% for the three months
ending March 31, 2005 as compared to the three months ending March 31, 2004,
cost of good sold for the comparable periods increased by $322,925. This was the
result of the change in the mix of the Company's revenue sources, with revenue
from company stores and revenue share locations having a higher gross margin
that revenue derived from simulator sales. Consequently, gross profit for the
three months ending March 31, 2005 fell by 16.85% as compared to the same period
in 2004.

Offsetting the decrease in gross profit was the decline in operating expenses by
38.75%, resulting in a $47,598 operating profit for the quarter ending March 31,
2005. This operating profit represents a $515,002 swing from the $467,404
operating loss for the quarter ending March 31, 2004 The decline in operating
expenses is a direct result of the implementation of the company's revised
business model, and is largely due to the closure or conversion to a revenue
share site of seven former company store locations. Payroll expenses declined
40.5% and occupancy expenses declined 49.8% when comparing the first quarter
2005 to the first quarter 2004. Interest expense for the three months ending
March 31, 2005 was $86,324 as compared to $52,973 for the comparable quarter in
2003. The net loss for the quarter ending March 31, 2005 of ($38,726) was
<PAGE>

$481,651 less than the ($520,377) loss for the same quarter one year ago. The
period ending March 31, 2005 marked the third consecutive quarter that the
company was able to generate positive EBITDA. EBITDA for the three months ending
March 31, 2005 was $133,846 as compared to a negative ($371,517) for the same
period ending March 31, 2004.

Liquidity and Capital Resources

The primary source of funds available to the Company are receipts from customers
for simulator and merchandise sales in its owned and operated racing centers,
percentage of gross revenues from simulator races and minimum guarantees from
revenue share sites, the sale of simulators, proceeds from equity offerings
including the $2,610,050 received in August 2002, proceeds from debt offerings
including the $700,000 in Secured Bridge Notes and warrants issued in March
2003, and the $604,000 in net proceeds from Notes and options issued between
February and June, 2004, loans from shareholders, credit extended by vendors,
and possible future financings.

As of the filing of this Form 10-QSB, the net proceeds of $1,593,708 from the
December 31, 2004 and March 31, 2005 sale of simulators to Race Car Simulation
Corp. have been depleted. The Company believes that it has generated a
significant interest in its simulators, and that some combination of revenue
share agreements, lease agreements and simulator sales agreements will be
sufficient to fund the daily operations of the business, although there can be
no assurances. Additionally, the Company continues to seek the financing
required to fully implement the desired level of growth its revised business
model is capable of generating. The Company's ability to raise the desired
financing will depend on many factors. Management believes the culmination of
the recent negotiations with Checker Flag Lightning into an agreement allowing
for cash flow to again be generated from the Checker Flag sites, combined with
some combination of simulator sales and the increased revenues that come from
additional third party revenue share agreements will allow the Company to
maintain and increase positive EBITDA and regain profitability. While management
is pursuing various forms of financing, there can be no assurance that
additional financing will be available or, if available, that it will be on
terms acceptable to the Company.

On December 31, 2004, the Company entered into an Asset Purchase Agreement
pursuant to which it sold thirty-four (34) of its race car simulators that were
located in existing revenue share locations. While this transaction generated an
aggregate purchase price of $1,536,600, it also depleted monthly revenue share
payments to the Company generated by the 34 simulators that were sold.
Management intends to contract with revenue share partners and install
simulators within its inventory to replenish the cash flow lost from 34
simulators that were sold in a timely manner, although there can be no
assurances.

During the three months ended March 31, 2005, the operating activities of the
Company used net cash of $259,824 compared to net cash generated of $23,109 for
the comparable period in 2004. The cash requirements from the increases in
accounts receivable and inventory, were partially offset by the increase in
accounts payable. Additionally, deposits on simulator sales decreased due to the
recording of three simulator sales transactions in the period ending March 31,
2005.

During the three months ended March 31, 2005, the Company used $428,925 of cash
in investing activities compared with $77,708 of cash used in investing
activities during the comparable period in 2003. The purchases in property and
equipment relates primarily to the construction in progress on the eight new
sites where we have begun the process of obtaining components, beginning
assembly, or installing simulators. The first 3 months of 2005 also saw the sale
of $382,270 worth of equipment in three separate transactions.
<PAGE>

During the three months ended March 31, 2005, the Company used $573,056 of net
cash in financing activities, compared with the $140,000 the Company generated
in the comparable period in 2004. As detailed above, the Company repaid $573,056
in debt obligations during the quarter ending March 31, 2005. The Company will
continue to use the debt markets to raise sufficient financing to fund its
growth opportunities as it continues to focus on revenue share and simulator
sales opportunities.

The Company's current debt financing includes the extension of $350,000 of the
Secured Bridge Notes and Warrants initiated in March of 2003 until September 30,
2005, and an extension of a Note and Option Agreement of $146,000 until August
2, 2005.

As of March 31, 2005, the Company had cash and cash equivalents totaling
$455,138 compared to $1,334,673 at December 31, 2004. Current assets totaled
$1,553,669 at March 31, 2005 compared to $2,058,820 on December 31, 2004.
Current liabilities totaled $4,058,794 on March 31, 2005 compared with
$4,618,647 on December 31, 2004. As such, these amounts represent an overall
increase in working capital of $54,702 for the three months ending March 31,
2005.

ITEM 3. Internal Controls and Procedures

The Principal Executive Officer ("PEO") and the Principal Financial Officer
("PFO") of the Company (currently one individual) have evaluated the
effectiveness of its disclosure controls and procedures (as defined in Rule
13a-14 of the Exchange Act) within 90 days prior to the filing of this report.
Based on that evaluation, the PEO and PFO have concluded that the Company's
disclosure controls and procedures are adequate and effective. There have been
no significant changes in the Company's internal controls, or in factors that
could significantly affect internal controls, subsequent to the most recent
evaluation of such controls.


                                     PART II

Item 1.  Legal Proceedings

From time to time, the Company may be party to various legal actions and
complaints arising in the ordinary course of business. As of March 31, 2005 and
as of the filing of this Interim Report on Form 10-QSB, the Company is not aware
of any material legal actions directed against the Company.

Item 2.  Changes in Securities

None, not applicable.

Item 3. Defaults Upon Senior Securities

None, not applicable.

Item 4. Submission of Matters to a Vote of Security Holders

None, not applicable.


Item 5.  Other Information

None, not applicable.

Item 6.   Exhibits and Reports on Form 8-K
<PAGE>

A. Exhibits.

         10.1     Form of Note and Option Purchase Agreement and Security
                  Agreement **
         10.2     Form of Procurement Contract **
         10.3     Form of Master Revenue Sharing Agreement**
         10.4     Asset Purchase Agreement with Race Car Simulation Corporation,
                  a portfolio company of Dolphin Direct Equity Partners, LP ***
         11.1     Computation of Earnings (Loss) Per Share
         31.1     Certification of William R. Donaldson as Chief Executive
                  Officer and Chief Financial Officer pursuant to Rule 13a-14 of
                  the Security Exchange Act of 1934.
         32.1     Certification of William R. Donaldson as Chief Executive
                  Officer pursuant to 18 U.S.C. Section 1350.
         32.2     Certification of William R. Donaldson as Chief Financial
                  Officer and Treasurer pursuant to 18 U.S.C. Section 1350.

         * Incorporated by reference from Form 10-QSB filed on November 14, 2002
         ** Incorporated by reference from Form 10-QSB filed on May 17, 2004 ***
         Incorporated by reference from Form 8-K filed on January 6, 2005



B. Reports on Form 8-K.

         99.1     Announcement dated January 8, 2005 of the entry into a
                  Material Definitive Agreement with Race Car
                  Simulation Corporation and Dolphin Direct Equity Partners, LP

         99.2     Announcement of the results of operations and financial
                  condition for the year ending December 31, 2004 dated
                  March 11, 2005.




<PAGE>



                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

                 INTERACTIVE MOTORSPORTS AND ENTERTAINMENT CORP.

Date: May 20, 2005                 By:       /s/ William R. Donaldson
                                   --------------------------------------------
                                   William R. Donaldson
                                   Chairman of the Board and Chief Executive
                                   Officer


Pursuant to the requirements of the Securities Exchange of 1934, this report has
been signed below by the following persons on behalf of the Registrant and in
the capacities and on the dates indicated.


Date: May 20, 2005                By:       /s/ William R. Donaldson
                                     ------------------------------
                                  William R. Donaldson
                                  Chairman of the Board and Chief Executive
                                  Officer
                                  (Principal Executive Officer)

Date: May 20, 2005                By:       /s/ William R. Donaldson
                                 -----------------------------------------------
                                  William R. Donaldson
                                  Chairman of the Board and Chief Executive
                                  Officer
                                  (Principal Financial Officer)



<PAGE>



                                  EXHIBIT INDEX

Exhibits:

         11.1     Computation of Earnings (Loss) Per Share
         31.1     Certification of William R. Donaldson as Chief Executive
                  Officer and Chief Financial Officer pursuant to
                  Rule 13a-14 of the Security Exchange Act of 1934.
         32.1     Certification of William R. Donaldson as Chief Executive
                  Officer pursuant to 18 U.S.C. Section 1350.
         32.2     Certification of William R. Donaldson as Chief Financial
                  Officer and Treasurer pursuant to 18 U.S.C.Section 1350.